Unexplained Wealth Orders: A legitimate and legal approach to corruption?

9 September 2015

The Government is taking a tough stance against corruption both internationally and at home. Speaking after the FIFA scandal, David Cameron described corruption as “the cancer at the heart of so many of the problems we face around the world” and named Sir Eric Pickles as his “Anti-corruption Champion”. 

Coinciding with the Prime Minister’s declaration, Transparency International UK issued a report in June proposing the introduction of “Unexplained Wealth Orders” (UWOs). These would enable UK officials to question individuals in relation to “unexplained wealth” and to support civil recovery proceedings against such assets where necessary. The proposed orders could be made even where there is no substantial proof that the property in question is connected to crime.

Since the report’s publication, UWOs have been discussed favourably in the House of Lords and Sir Eric Pickles recently came out in support of the introduction of such orders, which are currently used in Ireland and Australia.

Current Position

Under Part 5 of the Proceeds of Crime Act 2002 (POCA), an order can be made for civil recovery of property said to be derived from crime. In order to obtain such an order, there needs to be evidence that the property was obtained through criminal activity or in return for a specific criminal offence. The existence of unexplained wealth on its own is not sufficient for the purposes of civil recovery under POCA.

What would an Unexplained Wealth Order do?

The report from Transparency International UK suggested that UWO’s would do the following:

  • Require suspects relating to suspicious UK assets or transactions to have to explain legitimate and legal sources of wealth.
  • Give law enforcement more time to investigate suspicious transactions related to corruption. The current time restriction of 31 days under the money laundering reporting regime is thought to be limiting effective investigations, and suspicious transactions most often pass without any  action being taken by law enforcement
  • If a UWO is not responded to by a recipient, or their response is inadequate, then asset recovery proceedings could begin.
  • This new power “would allow law enforcement agencies in the UK to start questioning and acting on corrupt assets, without having to wait for a prosecution in the home country.”

The seizure of assets would be a civil penalty with a test applied of whether on ‘the balance of probabilities’ the asset in question represents the proceeds of corruption.

Cause for concern?

With the UK currently 14th in Transparency International’s corruption perception index, the introduction of such orders may encourage a higher ranking and could support David Cameron’s mission to stamp-out corruption in the UK.

Whilst the desire to tackle corruption is admirable, concern has been expressed that these orders are an example of undue interference by the state in the private property rights of individuals. Moreover, the seizure of assets by the state is a coercive measure which should not be used lightly. Critics are concerned by the order’s practical impact of reversing the burden of proof on individuals. In Australia, where they were first introduced in 2000, they have been unpopular and reportedly faced some “push-back” from the courts.  As a safeguard, Transparency International has suggested that the orders be limited to “politically exposed persons" or PEPs as defined by the Financial Action Task Force with consideration given to extending the orders to include “oligarchs”.

What next?

Eric Pickles has not confirmed what type of criminal activity would be captured by such orders. Transparency International has proposed the orders in connection with corruption but there appears to be no reason why they might not be applied to other crimes, particularly as unexplained wealth in itself is insufficient for civil recovery under POCA. The orders could well be deployed against those who have unexplained wealth derived from drugs, people trafficking and tax evasion. If it is easier to use UWO’s than civil recovery, the police are likely to want to extend them to all sorts of suspected criminal activity.

The Government plans to host an Anti-Corruption summit in 2016 which it hopes will put fighting corruption at the heart of international institutions and support investigators and prosecutors to bring the offenders to justice.  It is unclear when UWOs will be introduced but there may be a desire to have proposals in place before the summit begins.

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